Benchmarking using Replacement Asset Value. A benchmark is the end distance point from the start. In the world of maintenance it is the name for the targets that an organisation sets for itself in an improvement program. Benchmarking is often against world-best practice and it is used to provide direction and focus in an organisation’s efforts to improve. When RAV is chosen as the benchmark it means that the annual cost of maintaining the plant will be measured against the value of the plant. RAV is a percentage of the cost to replace the plant. The lower the RAV the more effective the maintenance effort.

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Benchmarking using Replacement Asset Value
ABSTRACT
Benchmarking using Replacement Asset Value. A benchmark is the end distance point from the start. In the world of
maintenance it is the name for the targets that an organisation sets for itself in an improvement program. Benchmarking is
often against world-best practice and it is used to provide direction and focus in an organisation’s efforts to improve. When
RAV is chosen as the benchmark it means that the annual cost of maintaining the plant will be measured against the value of
the plant. RAV is a percentage of the cost to replace the plant. The lower the RAV the more effective the maintenance
effort. Keywords: metric, maintenance cost, percentage replacement value
The percentage of annual maintenance costs, as a proportion of replacement asset value (RAV) is becoming the universal
way of benchmarking companies across a particular industry. It involves collecting the total annual maintenance costs and
then dividing the RAV into it and multiplying by 100 to give a percentage.
The RAV is, strictly speaking, the current cost to rebuild your plant today exactly as it is today. It is the current cost to
construct the plant to its present design. This approach takes in the effect of inflation on both the project costs and the spare
parts and maintenance costs. The difficult part is how can you cost the rebuild of your plant today.
The most accurate way is to give all your design and construction drawings of the plant and facility as-it-is-today to a
contractor and ask for a current price to build it. But that is a huge job and most people don't keep that sort of detail on their
plant. You can go to your insurer and ask them to let you use their replacement cost data for the equipment in your plant
and then, asset number by asset number, give it a current cost. But few insurers would have all the data you need. The last
option is the one most used and that is to get the as-constructed asset value from the company accountants for each asset and
then increase the as-constructed cost for inflation over the intervening years since construction.
The last option is not to hard to do if you use an average annual inflation increase on all the as-constructed values. Some
complications arise if the assets have been revalued. When assets are revalued the revaluation is the monetary worth of the
asset at that point in time, it is what people will pay for it and not actually what it costs. In that case take the as-constructed
figure and multiply it by the average annual inflation rate. Complication also arises if a lot of capital work was done on
maintenance and expensed. In that case the asset values in the asset register are undervalued. This is not usually a major
issue.
Unfortunately using as-constructed costs does not take into effect the savings made from the introduction of new technology
into the plant. Using new and better technology means the plant can now be made for less cost. But the accountant's books
only register actual historical costs and would show a higher value than it would really need to be. This also is not usually a
problem unless your plant has had a major technological change introduced into it since construction. Talk to the
accountants in that case and come up with new asset values that they are happy with.
If you cannot get as-constructed values (the asset register should have them) then a rough way to estimate RAV is to get the
total asset value for the entire plant as it is today from the accountants. The current value allows for depreciation. Then
factor back in the average depreciation and the average inflation rates by asset number. The accountants will have both
those rates.
The other side of the benchmarking equation is the annual maintenance costs. How true are your maintenance costs? If you
include plant improvements, safety improvements, environmental improvements, site security improvements, small capital
works and equipment modifications in the maintenance cost then you have an unreal, higher figure than the true
maintenance cost for maintaining your plant. Your benchmark result will be higher than it should be.
Maintenance costs are really the cost to repair and return an item to its as-designed function and specification - like-for-like.
Anything else is really a capital expense. But don't argue with people over definitions, as it is not worth the stress. Just be
aware of the issue and if it clearly is affecting the figures then talk the issue and its implications through with the people at
your place, and come to an acceptable decision for true maintenance costs.
If you do not collect your real maintenance costs separately to your total accounting costs then you need to introduce a
CMMS (Computerised Maintenance Management System) so you know where your money is going.
Below is some correspondence between Bill from the USA and myself. In it we discuss further complexities on the subject
of using percent of RAV as a benchmark.
Mike,
FEED FORWARD PUBLICATIONS, PO Box 578, BENTLEY, West Australia, 6102 Web: www.feedforward.com.au E-mail: info@feedforward.com.au
Because the authors, publisher and resellers do not know the context in which the information presented in the flyer is to be
used they accept no responsibility for the consequences of using the information contained or implied in any articles.

2. We are developing a metric which is Maintenance Cost per Replacement Asset Value. The RAV is determined by
first, listing the capitalized costs of all the assets and the year of capitalization, for all installations in the operating
unit with which we are concerned. Next, we adjust the amount to today’s dollars by an index.
An example would be; suppose the index follows the table shown below:
Year 2002 2001 2000 1999
Index 107 105 102 100
For an installation capitalized in 1999 with a value of $1,000,000. the RAV for that asset would be $1,070,000 in
2002.
If the maintenance cost for 1999 were $3,000; then the Maintenance cost per RAV would be 3.00% for 1999.
If the maintenance cost for 2002 were $3,000; then the Maintenance cost per RAV would be 2.80% for 2002,
which would actually be an improvement, even though the Maintenance Cost remained the same.
We have the index for the USA. I am looking for indices for other countries around the world. Can you help?
Regards, Bill
Hello Bill,
Thank you for the detailed examples of the index you are developing. It looks to me as if you are after the annual inflation
rate or 'cost of living' index in a country. In Australia you get that information from the Australian Bureau of Statistics.
That is a government body responsible for collecting relevant data from businesses and organisations and making it
available to government, business and organisations so that they have facts to make decisions on.
I would think most countries around the world have such an organisation. Inflation figures for countries should not be too
hard to get hold of. You might want to go a central world body that collects such information for member countries.
I can see what you are trying to do with your approach to indexing asset values and gauging your maintenance cost against
it. It is a worthwhile metric to use but one that can only ever be indicative and not absolute. There are too many other
variables impacting on the actual cost of annual maintenance to be able to use RAV in an absolute, this-is-exactly-how-it-is,
sense. For example the cost of stainless steel and alloy steel can swing wildly within 12 months, same with the cost of oil-
based materials use in equipment such as plastics, the cost of labour can rise several percent with a new wages decision, etc.
The effects of such things skew the results year to year.
One other problem is how do you compare across countries with different labour rates for the same duties. Japanese labour
is greatly more expensive than Indian labour doing the same job. So in India the percent of RAV will be less than it would
be in Japan for the same plant.
What if plant were brought from a country with high labour rates and fabrication costs but the business 'down the road'
brought the same plant from a country with low labour rates and fabrication costs - each would have different percent of
RAV results for substantially the same equipment. What if people brought second hand equipment into their plant and
maintained that at current maintenance costs. That would show a very bad percent of RAV result.
I am very skeptical of the claimed Japanese percentage of RAV figures that people use to prove Japan is way ahead of the
rest of the world in maintenance practices. I need to see the figures that people have used for myself, and check them over,
before I would believe them. Everything used to work out percentage of RAV depends on your definitions of what is a
maintenance cost and on how much you paid for the equipment in the first place. Without knowing how people defined
things in their surveys and how the companies surveyed defined such things in their annual accounts you could be making
false assumptions in your analysis.
You can get a good percent of RAV by paying a lot for your equipment and spending little on its maintenance. But would
tracking percent RAV in that case tell you the real truth of the situation? Would you want to use percent of RAV from such
a situation to compare across countries and across companies?
You can see that I have thought deeply about this metric. As a manager of an industrial facility I'd be interested in the trend
of maintenance cost as a percent of RAV over the years but would never really believe it is accurate to more than half a
percentage point.
Best regards,
Mike Sondalini – Equipment Longevity Engineer
FEED FORWARD PUBLICATIONS, PO Box 578, BENTLEY, West Australia, 6102 Web: www.feedforward.com.au E-mail: info@feedforward.com.au
Because the authors, publisher and resellers do not know the context in which the information presented in the flyer is to be
used they accept no responsibility for the consequences of using the information contained or implied in any articles.